Why Some Countries Can Escape the Fiscal Pro-Cyclicality Trap and Others Cannot ?
This paper analyzes the procyclicality of fiscal policy on the tax and spending sides in a sample of 116 developing countries between 2000 and 2016. About 20 percent of the countries in the sample switched from procyclical to countercyclical policy stance. In Sub-Saharan Africa, 30 of 39 countries remained caught in the procyclicality trap and the region has the highest degree of procyclicality. The Middle East and North Africa region switched from a countercyclical policy stance to a procyclical one over time. The Europe and Central Asia and Latin America and the Caribbean regions significantly reduced the degree of procyclicality. The main economic variables that affect procyclicality are financial depth, tax base variability, and natural resource dependence. In line with the political economy literature, the perception of corruption, social fragmentation, and inequality in resource distribution are positively associated with procyclicality. The findings also show that the quality of fiscal institutions is associated with procyclicality; countries with fiscal rules have smaller procyclical bias, but the effect is not homogeneous; and higher degrees of expenditure rigidity are associated with lower procyclical bias. The study finds asymmetric policy stances along the business cycle, with procyclicality being more pronounced during recessions. Similarly, the political cycle affects procyclicality, as procyclical bias increases in electoral years. From the tax management perspective, procyclical bias is still present, but there are significant changes: most of the political economy variables lose significance; the resource-dependence variable is not significant; external credit availability reduces procyclicality; tax base variability increases procyclical bias; and expenditure rigidity is no longer significant, but fiscal space becomes determinant of procyclical bias.
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Format: | Working Paper biblioteca |
Language: | English |
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World Bank, Washington, DC
2019-08
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Subjects: | CYCLICALITY, PUBLIC SPENDING, TAX RATE, RIGIDITY, FISCAL POLICY, PROCYCLICAL POLICY, POLITICAL ECONOMY, BUSINESS CYCLE, |
Online Access: | http://documents.worldbank.org/curated/en/510041565102137832/Why-Some-Countries-Can-Escape-the-Fiscal-Pro-Cyclicality-Trap-and-Others-Cannot https://hdl.handle.net/10986/32215 |
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dig-okr-10986322152024-06-23T06:35:01Z Why Some Countries Can Escape the Fiscal Pro-Cyclicality Trap and Others Cannot ? Kouame, Wilfred A. Herrera, Santiago Mandon, Pierre CYCLICALITY PUBLIC SPENDING TAX RATE RIGIDITY FISCAL POLICY PROCYCLICAL POLICY POLITICAL ECONOMY BUSINESS CYCLE This paper analyzes the procyclicality of fiscal policy on the tax and spending sides in a sample of 116 developing countries between 2000 and 2016. About 20 percent of the countries in the sample switched from procyclical to countercyclical policy stance. In Sub-Saharan Africa, 30 of 39 countries remained caught in the procyclicality trap and the region has the highest degree of procyclicality. The Middle East and North Africa region switched from a countercyclical policy stance to a procyclical one over time. The Europe and Central Asia and Latin America and the Caribbean regions significantly reduced the degree of procyclicality. The main economic variables that affect procyclicality are financial depth, tax base variability, and natural resource dependence. In line with the political economy literature, the perception of corruption, social fragmentation, and inequality in resource distribution are positively associated with procyclicality. The findings also show that the quality of fiscal institutions is associated with procyclicality; countries with fiscal rules have smaller procyclical bias, but the effect is not homogeneous; and higher degrees of expenditure rigidity are associated with lower procyclical bias. The study finds asymmetric policy stances along the business cycle, with procyclicality being more pronounced during recessions. Similarly, the political cycle affects procyclicality, as procyclical bias increases in electoral years. From the tax management perspective, procyclical bias is still present, but there are significant changes: most of the political economy variables lose significance; the resource-dependence variable is not significant; external credit availability reduces procyclicality; tax base variability increases procyclical bias; and expenditure rigidity is no longer significant, but fiscal space becomes determinant of procyclical bias. 2019-08-07T21:33:22Z 2019-08-07T21:33:22Z 2019-08 Working Paper Document de travail Documento de trabajo http://documents.worldbank.org/curated/en/510041565102137832/Why-Some-Countries-Can-Escape-the-Fiscal-Pro-Cyclicality-Trap-and-Others-Cannot https://hdl.handle.net/10986/32215 English Policy Research working paper,no. WPS 8963; Policy Research Working Paper;No. 8963 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank application/pdf World Bank, Washington, DC |
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CYCLICALITY PUBLIC SPENDING TAX RATE RIGIDITY FISCAL POLICY PROCYCLICAL POLICY POLITICAL ECONOMY BUSINESS CYCLE CYCLICALITY PUBLIC SPENDING TAX RATE RIGIDITY FISCAL POLICY PROCYCLICAL POLICY POLITICAL ECONOMY BUSINESS CYCLE |
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CYCLICALITY PUBLIC SPENDING TAX RATE RIGIDITY FISCAL POLICY PROCYCLICAL POLICY POLITICAL ECONOMY BUSINESS CYCLE CYCLICALITY PUBLIC SPENDING TAX RATE RIGIDITY FISCAL POLICY PROCYCLICAL POLICY POLITICAL ECONOMY BUSINESS CYCLE Kouame, Wilfred A. Herrera, Santiago Mandon, Pierre Why Some Countries Can Escape the Fiscal Pro-Cyclicality Trap and Others Cannot ? |
description |
This paper analyzes the procyclicality
of fiscal policy on the tax and spending sides in a sample
of 116 developing countries between 2000 and 2016. About 20
percent of the countries in the sample switched from
procyclical to countercyclical policy stance. In Sub-Saharan
Africa, 30 of 39 countries remained caught in the
procyclicality trap and the region has the highest degree of
procyclicality. The Middle East and North Africa region
switched from a countercyclical policy stance to a
procyclical one over time. The Europe and Central Asia and
Latin America and the Caribbean regions significantly
reduced the degree of procyclicality. The main economic
variables that affect procyclicality are financial depth,
tax base variability, and natural resource dependence. In
line with the political economy literature, the perception
of corruption, social fragmentation, and inequality in
resource distribution are positively associated with
procyclicality. The findings also show that the quality of
fiscal institutions is associated with procyclicality;
countries with fiscal rules have smaller procyclical bias,
but the effect is not homogeneous; and higher degrees of
expenditure rigidity are associated with lower procyclical
bias. The study finds asymmetric policy stances along the
business cycle, with procyclicality being more pronounced
during recessions. Similarly, the political cycle affects
procyclicality, as procyclical bias increases in electoral
years. From the tax management perspective, procyclical bias
is still present, but there are significant changes: most of
the political economy variables lose significance; the
resource-dependence variable is not significant; external
credit availability reduces procyclicality; tax base
variability increases procyclical bias; and expenditure
rigidity is no longer significant, but fiscal space becomes
determinant of procyclical bias. |
format |
Working Paper |
topic_facet |
CYCLICALITY PUBLIC SPENDING TAX RATE RIGIDITY FISCAL POLICY PROCYCLICAL POLICY POLITICAL ECONOMY BUSINESS CYCLE |
author |
Kouame, Wilfred A. Herrera, Santiago Mandon, Pierre |
author_facet |
Kouame, Wilfred A. Herrera, Santiago Mandon, Pierre |
author_sort |
Kouame, Wilfred A. |
title |
Why Some Countries Can Escape the Fiscal Pro-Cyclicality Trap and Others Cannot ? |
title_short |
Why Some Countries Can Escape the Fiscal Pro-Cyclicality Trap and Others Cannot ? |
title_full |
Why Some Countries Can Escape the Fiscal Pro-Cyclicality Trap and Others Cannot ? |
title_fullStr |
Why Some Countries Can Escape the Fiscal Pro-Cyclicality Trap and Others Cannot ? |
title_full_unstemmed |
Why Some Countries Can Escape the Fiscal Pro-Cyclicality Trap and Others Cannot ? |
title_sort |
why some countries can escape the fiscal pro-cyclicality trap and others cannot ? |
publisher |
World Bank, Washington, DC |
publishDate |
2019-08 |
url |
http://documents.worldbank.org/curated/en/510041565102137832/Why-Some-Countries-Can-Escape-the-Fiscal-Pro-Cyclicality-Trap-and-Others-Cannot https://hdl.handle.net/10986/32215 |
work_keys_str_mv |
AT kouamewilfreda whysomecountriescanescapethefiscalprocyclicalitytrapandotherscannot AT herrerasantiago whysomecountriescanescapethefiscalprocyclicalitytrapandotherscannot AT mandonpierre whysomecountriescanescapethefiscalprocyclicalitytrapandotherscannot |
_version_ |
1802820737619197952 |